The Role of CFO-Beyond the Finance Function

“The role of CFOs has evolved significantly beyond traditional finance functions, with a focus on leadership, collaboration with other C-suite executives, and maximizing value creation. CFOs are now strategic partners to CEOs, involved in shaping portfolio strategies, managing risks, and communicating with stakeholders. They play a crucial role in innovation, ESG initiatives, digital transformation, and capability building within organizations”

This article discusses the role of CFO beyond the basic finance Function.

CFO may stand for?chief financial officer—but long gone are the days when the CFO’s purview was just finance. For years, the simple answer was that the CFO leads a company’s finance function. But the role has expanded tremendously. Today’s CFO is a key colleague across businesses and functions, and is the?CEO’s strategic partner in maximizing value creation. The CFO helps with shaping portfolio strategies, undertaking major investment and financing decisions, and communicating with key stakeholders—all while leading a multitalented and technologically savvy finance team. Communication is a key part of the role, both with investors and boards. This goes beyond earnings calls: CFOs are responsible for building credibility for the strategic direction of the company.

The CFO and finance team can also model good financial and team-building practices for teams across the entire organization. This can include demonstrating to other teams the linkages among individual, team, and organizational performance.

Another critical aspect of the CFO job is dealing with risk. Managing risks associated with cash, capital, resource deployment, accounting compliance, and strategy remains core to the role even as it expands into nonfinancial realms.

McKinsey has developed seven key mind-sets and practices that new finance leaders might adopt to help ensure long-term success.

1.????? Scope the challenge.?CFOs should form an independent, fact-based view of the resources, support structures, and activities that the organization has in place to create value—as well as which ones actually do create value. Then they should make sure all C-suite colleagues, business unit leaders, and the?board of directors?are aligned. This may be more difficult than it seems as leaders’ conclusions can be clouded by incomplete information and?biases.

2.????? Adopt a bias for action.?A company can’t achieve or sustain a competitive advantage by staying in place. The best CFOs are constantly looking for ways to create more value for the competitive landscape of the future—not the present. They do this by committing to?innovation?and allocating resources to?digital transformation?for all functions of the company.

3.????? Make space in your portfolio for a few bold bets.?This bias for action could yield some big changes, even to core business functions. An effective CFO should make sure that every aspect of the business is always on the negotiating table—and should always be subject to a “grow or go” mentality. The best CFOs understand and communicate that it’s a losing bet?not?to take any?risks.

4.????? Teach and translate.?The best CFOs focus on frank dialogue with the CEO, the board, and the top team about the economics of the organization and clearly explain the consequences of making various trade-offs. Communicating in a way that everyone can understand means avoiding financial jargon. But avoiding oversimplification is equally important.

5.????? Be proactive about risk.?As we’ve seen, risk is necessary in business. But some risks are outside the control of even the best-prepared executive. The effective CFO will help their organization respond to crises and build up organizational?resilience?for the long term.

6.????? Think strategically about ESG.?Environmental, social, and governance (ESG) concerns should stem from an organization’s unique business model. At a minimum, companies can use ESG to comprehensively consider ways to mitigate risk. Beyond that, the best CFOs approach ESG as a growth play. McKinsey research shows that?more than 80 percent?of C-suite leaders and investment professionals expect ESG programs to contribute more shareholder value in five years than they do today.

7.????? Pull together for talent.?The best CFOs collaborate closely with their colleagues, particularly the?CEO?and chief human resources officer (CHRO), to direct capital toward attracting, teaching, and retaining talented employees.

What role should CFOs today play in innovation?

?

Innovation is more than just generating ideas; it requires providing resources for execution. CFOs play a crucial role in mobilizing resources for innovation due to their focus on efficiency and productivity. Effective innovation processes, such as stage-gate processes, are essential for successful implementation. Employees may perceive CFOs as barriers to innovation, highlighting the need for a cultural shift. CFOs should foster a culture that celebrates risk-taking and leadership in addition to successful innovations. Recognizing and rewarding individuals who contribute to innovation, regardless of outcomes, is vital for fostering a culture of creativity. CFOs can leverage their position to champion innovation initiatives and drive organizational change.

What role do CFOs today play in ESG initiatives?

In the past,?digital transformations?were primarily about cost, so naturally, the CFO was ultimately in charge. These days, however, digital transformations extend to ESG goals. CFOs should play a larger role in shaping ESG programs and better align social and climate issues with the company’s overall direction and as per a study, when CFOs are engaged in ESG initiatives, they do better: there is a?20- to 30-percentage-point higher alignment?between ESG initiatives and strategic goals when CFOs are actively engaged in ESG topics.

Why should CFOs be closely involved in capability building?

Capabilities encompass the mind-sets and behaviours necessary for an organization to achieve and sustain its full potential. Building these capabilities, or developing the skills needed for success, is paramount for overall performance. In today's rapidly evolving business landscape, leaders must view capability building as a strategic tool to establish a competitive edge and significantly enhance employee well-being.

From the perspective of a CFO, it's imperative to recognize that low employee satisfaction can have cascading effects, leading to decreased productivity and morale. This downward spiral can negatively impact an organization's performance. To cultivate agility in the marketplace, organizations must retain talented individuals. Achieving this involves a concerted effort to bolster employee satisfaction.

To cultivate satisfaction among employees, CFOs should take on the role of talent magnets and chief inspirers. Utilizing data-driven insights, they can pinpoint skills gaps and strategically allocate resources to address them. Moreover, adopting a holistic approach, CFOs can impart basic financial acumen across the organization, ensuring that every individual understands the factors driving performance. By empowering employees to excel in their roles, CFOs can elevate satisfaction levels and ultimately enhance overall organizational performance."